For U.S. and Carmakers, a Path Strewn With Pitfalls

Tuesday

President Obama’s decision to reshape the automakers inverts the relationship that helped define the rise of manufacturing in the U.S.

As an assertion of government control over a huge swath of the industrial landscape, President Obama’s decision to reshape the automobile industry has few precedents.

In essentially taking command of General Motors and telling Chrysler to merge with a foreign competitor or cease to exist, Mr. Obama was saying that economic conditions were sufficiently dire to justify a new level of government involvement in the management of corporate America.

His message amounted to an inversion of the relationship that had helped define the rise of American manufacturing might in the 20th century; now, Mr. Obama seemed to be saying, what is good for America will have to be good enough for General Motors.

In the past, the United States government had briefly nationalized steel makers and tried to run the railroads, with little success. In the last nine months it has taken control of the American International Group insurance firm and Fannie Mae and Freddie Mac, firing their management as well, at a cost that dwarfs what is unfolding in Detroit.

But directing the fate of a vast manufacturing company, one that still looms over the Midwest, is an entirely different kind of enterprise. And at a time when economists are debating the merits of nationalizing sick banks and pouring more taxpayer money into the economy, it raised the question of whether deteriorating circumstances were leading the administration down a path to deeper intervention in the private sector.

In presenting the automobile plan on Monday, Mr. Obama suggested just how tricky it can be for Washington to wade into the marketplace: He declared that the government would back up warranties on Pontiacs and Buicks and the rest of the G.M. and Chrysler product lines, so that consumers would have no fear of buying those cars.

It may have been a necessary step, but it means that the government now is not only the ultimate guarantor of savings accounts and insurance policies — it will also cover that blown transmission.

When he stood in the White House to unveil his approach, Mr. Obama took pains to assure the country — twice — that “the United States government has no interest in running G.M.”

No interest, perhaps, but also no choice.

After a team of his aides concluded that the latest “viability plan” was once again far too modest, far too optimistic and far too late — a product of the same thinking that allowed Japan in the latter years of the 20th century to carve away one of the great American manufacturing franchises — Mr. Obama took a step that would have been unimaginable just 12 months ago.

He forced out the chairman of a company that, in a previous era, would regularly send its executives to Washington to prod the gears of government. He made it clear that the White House would oversee, and heavily influence, decisions about what plants to shutter, what brands of cars to abandon and how much workers and managers will be paid.

And with no edge to his voice, he left hanging the threat that he might yet force G.M. into a quick, managed bankruptcy, if it was the fastest way to remake the company. That message was directed at G.M.’s reluctant bondholders, an unsubtle warning that they must negotiate to get 16 or 20 cents on the dollar — or risk getting far less.

Mr. Obama did not nationalize the company, at least in any technical sense. In that respect, his action on Monday differed significantly from Harry Truman’s decision in 1952 to take over the nation’s steel makers, at the end of the Korean War, rather than allow a United Steelworkers strike to bring production to a halt. That action was quickly overturned by the Supreme Court, which ruled that Mr. Truman did not have the authority to order the takeover.

But Mr. Obama is not relying on a statute. His powers derive from the fact that the White House and the Treasury control the last piles of cash available to keep G.M. a going concern.

He argued that without action, production would cease — and the country would be left with no domestic carmakers. (He sidestepped the question of whether Japanese, German and Korean transplants in the South constitute an American industry, but clearly their model is what he is hoping to replicate and best.)

But to Mr. Obama’s critics, who have thrown around the word “socialism,” the distinction may be lost. And in many ways Mr. Obama’s ambitions go far beyond Truman’s: He displayed a willingness to use his powers expansively not just to cope with the immediate crisis, but to reshape the industry for when times get better.

“It should have happened years ago,” said Mary Ann Keller, a longtime auto analyst who has been unrelentingly critical of G.M. for, in her words, “being perpetually two years behind the curve.”

“It must have come as shock to their management, because when you think about it, the government never said no to them before,” Ms. Keller said. “When G.M. complained about the Japanese, the government got ‘voluntary restraints’ on car imports. When G.M. said it would be hurt by fuel efficiency standards, the standards were usually watered down.”

As the company’s lender of last, last resort, the government will have the final say on every significant decision until the company is turned back out into the free market. And for Mr. Obama, that entails many political risks.

If the generous health care plans that autoworkers have grown accustomed to are pared back, if wages fall to something closer to what workers at the Japanese and German transplants in the South are paid, it will be Mr. Obama — not G.M.’s management — who will be blamed.

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